Stanley Fischer leaves big shoes to fill


Sid Verma
Published on:

The retiring Bank of Israel governor showed exemplary prescience in shielding his country from global economic crises.

Even relative to the standards of domineering Bank of Israel chiefs, such as Jacob Frenkel, outgoing governor Stanley Fischer will be seen as a towering figure in Israeli monetary policy history, from the perspective of both economists and investors.

Underscoring the pivotal role of the former Citi banker in shoring up the country’s economic defences, the end-January announcement that Fischer would leave the institution in June, two years before the end of a second term, triggered a mild sell-off in the country’s government bond market and fears among Israeli observers. The adulation and trust invested in Fischer is entirely justified. The former IMF deputy managing director's astute policy moves, before and after the Lehman Brothers collapse, have boosted his status as a highly respected economic soothsayer, whose pronouncements are observed globally – transcending the influence of the $240 billion-plus Israeli economy. Fischer – Euromoney’s central bank governor of the year in 2010 – helped to shield Israel from the storms emanating from the US syndicated loan crisis, in the months preceding the Lehman collapse, stepping up acquisitions of foreign-currency reserves and embarking on quantitative easing (QE) through purchases of long-term debt. The Bank of Israel chief has helped to insulate the economy from the global storm by intervening in the foreign exchange market, ensuring that the export sector was not demolished by an uncompetitive shekel.
Bank of Israel governor Stanley Fischer
Stanley Fischer, outgoing governor of the Bank of Israel
On October 6, 2008, Fischer cut Israel’s benchmark rate – one day before monetary policymakers in the US, UK and eurozone coordinated their interest rate cuts. Fischer then cut the rate to a record low of 0.5% by April 2009 and embarked on an aggressive bout of QE, astutely judging the market tide. Finally, in January 2012, Fischer cut rates, again anticipating monetary loosening globally – as he rightly judged growth fears would outweigh inflation concerns. All these moves combined have profoundly boosted Israeli output and market confidence. Aside from the central bank’s ahead-of-the-curve monetary stance, Fischer’s long-standing academic and practical embrace of flexible inflation-targeting and pro-growth policy innovations have influenced transatlantic monetary policies. Given his international stature in a small economy, Fischer, Ben Bernanke’s former thesis adviser, does have his domestic critics, with analysts in private assuming he holds too much sway on fiscal policy, in his capacity as economic adviser to the government, and has taken too much credit for Israel’s relative stability in the global crisis, against the backdrop of a possible real estate bubble. What’s more, critics argue that Fischer has apparently done little to dampen the impression of distrust for prime minister Benjamin Netanyahu's economic policies.

The strong assumption is that his replacement will continue monetary expansion, amid anaemic growth and stresses in the housing sector. But Fischer’s policy creativity is thanks to his unassailable brilliance as a macroeconomist, as well as his market nous as a central banker.

He leaves big shoes to fill. Indeed, Fischer’s market instincts and astute knowledge of economics endow him with impeccable credentials to lead the Federal Reserve in 2014, a prospect even his supporters concede is unlikely given his age and outsider status.